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Personal Finances / Credit Cards and Consumer Debt


Subject:  Re: Converting investment dollars Date:  3/28/2020  2:19 PM
Author:  aj485 Number:  312823 of 312868


Yes, taking out a 457 loan in January would have helped you 'lock in' part of your gains by selling investments to fund the loan at/near the top. (Any funds remaining invested would have still had losses.) However, as previously suggested, you could have locked in all of your gains by selling all of the investments and putting the funds into your plan's version of a money market account - often called a 'GIC' or 'Stable Value' fund. That would have been engaging in market timing. Hindsight is very perceptive in determining when to do market timing. Foresight, often not so perceptive.

That said, taking out a 457 loan in January and using it to pay your credit cards would have also exposed you to a significant risk if you were laid off. I know you say your primary employment is 'stable' - but if things go really bad, you may find that your employment is not as stable as you think it is. With the relief bill that was just passed, you may be able to avoid penalties. But you would still owe taxes on a loan ends up being a distribution. If you had borrowed $42k and lost your job, and were unable to pay, say, $40k back, at a 22% marginal rate, that would have resulted in an additional $8800 in taxes, even without penalties.

With the 0% BT that you were able to snag, you've effectively cut the current interest you're paying about in half. If you manage to pay down the card that's paying you interest in 8 months, you'll pay $670 more in interest on that, plus the $350 or so you've paid since January. And then, if it takes you another 6 months after the BT expires to pay down $10k at 17%, that will cost you another $450 in interest. That's a total interest of $1,470 - as compared to $8,800 in taxes that could potentially owe.

Actually resolving the issues that caused your overspending and sticking to a budget, as you are doing now, will serve you better in the long run. And it is likely that your 457 will recover, as long as you haven't panicked and sold everything.

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